Archive – Tax Relief measures

National Treasury and SARS are proposing the following set of measures to help businesses focus on staying afloat and paying their employees and suppliers.

Useful links:

• SARS general COVID-19 information
• SARS Customs specific COVID-19 information
• General Tax Relief FAQs
• Apply for Small Business Relief through the Department of Small Business Development
• Apply for UIF through the Department of Employment and Labour

28 July 2021 – Emergency Tax Relief measures for 2021:

IN RESPONSE TO THE CONTINUING COVID-19 PANDEMIC AND RECENT UNREST IN THE COUNTRY 

1.Extension of the expanded Employment Tax Incentive (ETI) age eligibility criteria and amount claimable

Background

In 2020, Parliament passed the Disaster Management Tax Relief Act, 2020 and the Disaster Management Tax Relief Administration Act, 2020, containing exceptional tax measures which formed part of the fiscal package aimed at assisting taxpayers who experienced cashflow constraints as a result of the COVID-19 pandemic and required national lockdown.

One of the exceptional tax measures included in the above-mentioned Acts was an expansion to the Employment Tax Incentive (ETI). This expansion was provided to assist employers retain employees, thus reducing the risk of low-income earners losing their employment as a result of the lockdown.

The expanded ETI was structured as follows:

• A R750 increase to the maximum monthly amount of ETI allowable.
• Allowing the above mentioned monthly ETI claim to apply to employees not classified as qualifying employees in terms of the current provisions of the ETI Act for a limited period, irrespective of their date of employment (employees employed before 1 October 2013 for whom the ETI has never been claimable also qualified for the relief).
• Due to the fact that the requirement for social distancing was likely to result in employees working significantly reduced hours, which would impact the monthly remuneration actually paid, the proposal allowed for the calculation of the ETI claim based on actual remuneration paid in that month where the employee worked less than 160 hours a month (the remuneration paid to the employee did not need to be grossed-up).
• Accelerating the ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible.
• As the contractual agreement entered into at the beginning of the employees employment with the employer was not altered, the extent of the ETI claimable in instances where the employee was employed for less than 160 hours a month would still be impacted by the hours employed and paid for in that month (the incentive claimable would bear the same ratio that the number of hours the employee was remunerated bears to 160 hours . the incentive needed to be grossed-down).
• The inclusion of an anti-avoidance measure aimed at limiting potential abuse where an employer claimed the incentive despite having significantly reduced the employeefs wages. This anti-avoidance measure applied to wages below R2 000.
• The expansion applied for a period of four months and was deemed to have come into operation on 1 April 2020 and ended on 31 July 2020.

Reasons for change

Despite the recent relaxation of the national lockdown, various businesses and employees are still negatively impacted by the COVID-19 pandemic. These negative impacts are further exacerbated by the impacts of the recent unrest in the country that resulted in a destruction of businesses and infrastructure. Government therefore wishes to provide additional assistance to those who continue to be adversely affected by COVID-19, as well as assisting in the process of reconstructing businesses. Moreover, this support measure is aimed at supporting employment in the most vulnerable sections of the labour market.

Proposal

As a result, it is proposed that the expansion of the ETI be reinstated for another limited four-month period, following the design implemented in 2020:

• A R750 increase to the maximum monthly amount of ETI allowable. Therefore, the maximum allowable values will be increased in the following manner:
  • Employees eligible under the current ETI Act from R1 000 to R1 750 in the first qualifying twelve months and from R500 to R1 250 in the second twelve qualifying months.
  • Allowing a monthly ETI claim in the amount of R750 during this four-month period for employees from the ages of 18 to 29 who are no longer eligible for the ETI as the employer has claimed ETI in respect of those employees for 24 months, or they were in the employers employ before 1 October 2013.
  • Allowing a monthly ETI claim in the amount of R750 during this four-month period for employees from the ages 30 to 65 who are not eligible for the ETI due to their age.
  • Formulae will apply to calculate the value of the incentive relative to remuneration received, to introduce the incentive at a positive rate for wages between R0 and R2 000 per month, at a constant value for wages between R2 000 and R4 500 per month, and at a declining rate for wages between R4 500 and R6 500.
  • Due to the fact that the requirement for social distancing may result in employees working significantly reduced hours, coupled with businesses that are being reconstructed being unable to trade as normal at the moment, both of which would impact the monthly remuneration actually paid, the proposal allows for the calculation of the ETI claim based on actual remuneration paid in that month where the employee worked less than 160 hours a month (the remuneration paid to the employee would not need to be grossed-up).
  • As the contractual agreement entered into at the beginning of the employees employment with the employer will not be altered, the extent of the ETI claimable in instances where the employee was employed for less than 160 hours a month would still be impacted by the hours employed and paid for in that month (the incentive claimable will bear the same ratio that the number of hours the employee was remunerated bears to 160 hours . the incentive would need to be grossed-down).
  • The inclusion of an anti-avoidance measure aimed at limiting potential abuse where an employer claims the incentive despite having significantly reduced the employees wages. This anti-avoidance measure will apply to wages below R2 000.
  • Accelerating the ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible.
  • To qualify for this relief, the employer must be tax compliant and registered with the South African Revenue Service (SARS) as an employer by 25 June 2021.

Effective date

The proposed measures will apply for a period of four months and will come into operation on 1 August 2021 and end on 30 November 2021.

2. Extension of the deferral of the payment of employees’ tax liabilities for tax compliant small to medium sized businesses

Background

In 2020, Parliament passed the Disaster Management Tax Relief Act, 2020 and the Disaster Management Tax Relief Administration Act, 2020, containing exceptional tax measures which formed part of the fiscal package aimed at assisting taxpayers who experienced cashflow constraints as a result of the COVID-19 pandemic and required national lockdown.

One of the exceptional tax measures included in the above-mentioned Acts was the deferral by employers of the payment of employees’ tax liabilities (PAYE) to SARS for a limited five-month period. This PAYE deferral was structured as follows:

• Deferral of payment of 35 per cent of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof.
• The deferred PAYE liability had to be paid to SARS in equal instalments over the six-month period commencing on 1 September 2020, (i.e. the first payment had to be made on 7 October 2020).
• The application of the proposal to small or medium sized businesses conducted by a company, partnership, individual or trust with a gross income not exceeding R100 million for the year of assessment ending on or after 1 April 2020 but before 1 April 2021.
• The inclusion of a limitation stating that gross income should not include more than 20 per cent of income derived from interest, dividends, foreign dividends, royalties, rental from letting fixed property, annuities and any remuneration received from an employer,
• Rental income derived from the letting of fixed property excludes rental income derived by a person whose primary trading activity is the letting of fixed property and substantially the whole of the gross income is rental from fixed property.
• The requirement that the employer is tax compliant in terms of the Tax Administration Act when making a reduced payment.
• The relief measure applied for a limited period of five months beginning 1 April 2020 and ending 31 August 2020.

Reasons for change

Despite the relaxation of the national lockdown, various businesses and employees are still negatively impacted by the COVID-19 pandemic. These negative impacts are further exacerbated by the impacts of the recent unrest in the country that resulted in the destruction of businesses and infrastructure. Government therefore wishes to provide additional assistance to those who continue to be adversely affected by COVID-19 as well as assisting in the process of reconstructing businesses.

Proposal

As a result, it is proposed that the PAYE deferral relief measure be reinstated for another limited three-month period as follows:

• Deferral of payment of 35 per cent of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof.
• The deferred PAYE liability for the three-month period of August to October 2021 must be paid to SARS in equal instalments over a four-month period commencing on 1 November 2021, (i.e. the first payment must be made on 7 December 2021).
• The proposal will be available to small or medium sized businesses conducted by a company, partnership, individual or trust with a gross income not exceeding R100 million for the year of assessment ending on or after 1 April 2021 but before 1 April 2022.
• The inclusion of a limitation that gross income should not include more than 20 per cent of income derived from interest, dividends, foreign dividends, royalties, rental from letting fixed property, annuities and any remuneration received from an employer,
• Rental income derived from the letting of fixed property excludes rental income derived by a person whose primary trading activity is the letting of fixed property and substantially the whole of the gross income is rental from fixed property.
• The requirement that the employer is tax compliant in terms of the Tax Administration Act when making a reduced payment.
• To qualify for this relief measure, the employer will need to have been registered with SARS as an employer by 25 June 2021.

Effective date

The proposed measures will come into operation on 1 August 2021 and end on 31 October 2021

3. Deferral of Excise Duties on Alcoholic beverages

Background

In 2020, the rules to the Customs and Excise Act, 1964, were amended to insert rules 105.01 to 105.04 to permit applications to SARS for deferral of payment of excise duties in cases of temporary financial constraint. These rules were applied to assist tax compliant licensees in the alcohol sector when restrictions were imposed on the sale of alcoholic beverages in December 2020.

Reasons for change

Despite the relaxation of the national lockdown, various businesses and employees are still negatively impacted by the COVID-19 pandemic. The increase in infection rates resulted in a need to return the country to lockdown level four, which necessitated the need to restrict the sale of alcoholic beverages. Government therefore wishes to provide assistance to those within this sector who continue to be adversely affected by COVID-19.

Proposal

SARS will provide deferrals of up to three months for payments by tax compliant licensees in the alcohol sector, on application setting out the circumstances justifying a deferral.

Effective date

Immediate.

Tax Relief measures for 2020:

1. Employers: 

• An increase in the expanded employment tax incentive amount: The first set of tax measures provided for a wage subsidy of up to R500 per month for each employee that earns less than R6 500 per month. This amount will be increased to R750 per month at a total cost of around R15 billion. An increase in the proportion of tax to be deferred and in the gross income threshold for automatic tax deferrals: The first set of tax measures also allowed tax compliant businesses to defer 20 per cent of their employees’ tax liabilities over the next four months (ending 31 July 2020) and a portion of their provisional corporate income tax payments (without penalties or interest). The proportion of employees’ tax that can deferred will be increased to 35 per cent and the gross income threshold for both deferrals will be increased from R50 million to R100 million, providing total cash flow relief of around R31 billion with an expected revenue loss of R5 billion.
• See our FAQs for Employers.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.
• Extension of COVID-19 relief for PAYE.

2. VAT:

• Fast-tracking of value-added tax (VAT) refunds: Smaller VAT vendors that are in a net refund position will be temporarily permitted to file monthly instead of once every two months, thereby unlocking the input tax refund faster and immediately helping with cash-flow. SARS is working towards having its systems in place to allow this in May 2020 for Category A vendors that would otherwise only file in June 2020.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.
• COVID-19 VAT Refund Relief for Vendors – See our list of FAQs. 

3. Provisional Tax:

• See the following measures aimed in assisting small to medium sized businesses (individuals, companies, and trusts (including micro-businesses) to alleviate cash flow problems for compliant provisional taxpayers:
  • Deferral of a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing penalties and interest for the late payment of the deferred amount;
  • The first provisional tax payments due from 1 April 2020 to 30 September 2020 will be based on 15 percent of the estimated total tax liability, while the second provisional tax payments due from 1 April 2020 to 31 March 2021 will be based on 65 percent of the estimated total tax liability (after deducting the 15% payment amount received from the 1st period into account);
  • Provisional taxpayers with deferred payments will be required to pay the remaining 35% tax liability when making the third provisional tax payment in order to avoid interest charges on assessment.

4. Excise:

• A deferral for the payment of excise taxes on alcoholic beverages and tobacco products: Due to the restrictions on the sale of alcoholic beverages and tobacco products, payments due in May 2020 and June 2020 will be deferred by 90 days for excise compliant businesses to more closely align tax payments through the duty-at-source system (excise duties are imposed at the point of production) with retail sales. This is expected to provide short term assistance of around R6 billion.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.
  

5. Skills development levy:

• Skills development levy holiday: From 1 May 2020, there will be a four-month holiday for skills development levy contributions (1 per cent of total salaries) to assist all businesses with cash flow. This provides relief of around R6 billion.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.

6. Corporate Income Tax:

• Postponing the implementation of some Budget 2020 measures: The 2020 Budget announced measures to broaden the corporate income tax base by (i) restricting net interest expense deductions to 30 per cent of earnings; and (ii) limiting the use of assessed losses carried forward to 80 per cent of taxable income. Both measures were to be effective for years of assessment commencing on or after 1 January 2021. These measures will be postponed to at least 1 January 2022.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.

7. Carbon Tax:

• Three-month deferral for filing and first payment of carbon tax liabilities: The filing requirement and the first carbon tax payment are due by 31 July 2020. To provide additional time to complete the first return, as well as cash flow relief in the short term, and to allow for the utilisation of carbon offsets as administered by the Department of Mineral Resources and Energy, the filing and payment date will be delayed to 31 October 2020, providing cash flow relief of close to R2 billion.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.

8. Penalties:

• Case-by-case application to SARS for waiving of penalties: Larger businesses (with gross income of more than R100 million) that can show they are incapable of making payment due to the COVID-19 disaster, may apply directly to SARS to defer tax payments without incurring penalties. Similarly, businesses with gross income of less than R100 million can apply for an additional deferral of payments without incurring penalties.
• How to apply for the waiving of penalties for tax debt:
  • Larger businesses (with gross income of more than R100 million) that are incapable of making payment due to the COVID-19 disaster, may apply to defer tax payments without incurring penalties by emailing us on [email protected].
  • Similarly, businesses with gross income of less than R100 million can apply for an additional deferral of payments without incurring penalties by emailing us on [email protected].
  • For more information on the requirements and documents to include in the application, see the How do I query my debt webpage.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.

9.  Expanding access to Living Annuity Funds:

• In order to assist individuals who either need cash flow immediately or who do not want to be forced to realise living annuity investments that have underperformed, Government proposes amending GN290, Government Gazette 32005 of 11 March 2009 by expanding access to living annuities for a limited period of four months, beginning 1 May 2020 and ending on 31 August 2020 as follows:
  • Allowing individuals who receive funds from a living annuity to temporarily immediately either increase (up to a maximum of 20 per cent from 17.5 per cent) or decrease (down to a minimum of 0.5 per cent from 2.5 per cent) the proportion they receive as annuity income, instead of waiting up to one year until their next contract anniversary date;
  • Allowing individuals to adjust their draw down rates at any time during this period (irrespective of whether or not the contacts¡¦ anniversary date falls within the said period);
  • Any elections made during this period will only be applicable for the above mentioned four-month period. The lapsing of this period will result in the draw down rates automatically reverting to the rates applicable before said election.

In addition, Government proposes to amend GN1164, Government Gazette 31554 of 30 October 2008 as follows:

• The R50 000, which is the minimum value of the annuity or part of the retirement interest which an individual can withdraw in the event that there was any previous lump sum commutation in the fund and R75 000 in any other case be replaced by a single threshold of R125 000 to be applied as the de-minimis amount.
• The proposed amendments to the de-minimis amounts to R125 000 will not be limited to the four month period and will continue to apply therafter.
• See Treasury and SARS’s Explanatory Notes on Tax Measures.

10. Increasing the deduction available for donations made to Solidarity Fund:

• To alleviate the cashflow difficulties of employees where their employers contribute to the Solidarity Fund on their behalf, Government is proposing a special relief measure by temporarily increasing the current 5 per cent tax limit in the calculation of monthly PAYE of the employee. An additional limit of up to a maximum of 33.3 per cent for three months or 16.66% for six months, depending on an employee’s circumstances, will be available.

  This will ensure that the employee gets the deduction that is in excess of 5 per cent much earlier than under normal circumstances and will therefore not have to wait until final assessment to claim a potential refund, provided the donation is made to the Solidarity Fund. It is, however, important to note that a final determination must still be made upon assessment as the employee may have other income, deductions or losses that impact the final taxable income before the deduction of donations.

• See Treasury and SARS’s Explanatory Notes on Tax Measures.

11. Adjusting PAYE for donations made through the Employer to the Solidarity Fund:

• In order to encourage South Africans to make contributions to the Solidarity Fund in line with the President’s call to action, it is proposed that the tax-deductible limit for donations, currently 10 per cent of taxable income, be increased to 20 per cent in respect of donations in cash or of property in kind donated and actually paid or transferred to the Solidarity Fund at the end of the year of assessment of the donor to the Solidarity Fund during the 2020/21 tax year. There will, thus, be a limit of 10 per cent for any qualifying donations (including donations to the Solidarity Fund in excess of its specific limit) and an additional 10 per cent for donations to the Solidarity Fund.

  The 20 per cent tax-deductible limit for donations will apply only to donations made during the 2020/2021 tax year. Any donations over the limit made during the 2020/2021 tax year will be carried forward and deemed to be a donation made in the succeeding year of assessment (2021/2022) and be subject to the 10 per cent limitation in that year.

• See Treasury and SARS’s Explanatory Notes on Tax Measures.